Competition and Governance: Minority Shareholdings in Small Countries

Sean Ennis, Jan 10, 2012

Competition and good governance are closely related. When competition law and corporate governance intersect, it is important to be sure that the overlap gives rise to consistent policies. This paper identifies two major areas of intersection concerning minority shareholdings. The paper finds that competition law yields outcomes consistent with corporate governance standards and, at limited times, may provide an alternative path to enforceable standards of good corporate governance. Corporate governance rules are likely a more complete way of addressing distortions of competition that arise from related-party transactions than competition law. Nonetheless, somewhat surprisingly, competition law may have some role to play in cases of related-party dealing to purchase at above-market prices. In some circumstances, competition law may even provide firmer guidance than laws on corporate governance.

The first overlap between competition law and shareholding structures occurs when a common owner has shareholdings in multiple competing companies. The second occurs when a company in a group purchases from a related company (often in the same group), even when better deals for supplies could be found outside the group. On the one hand, minority shareholdings, even at a level of less than 20 percent, can create positions of influence that can merit treatment under merger review for potential lessening of competition between competing companies that are link…

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